Job Market Paper


Wealthy hand-to-mouth agents, first introduced in (Kaplan & Violante, 2014), have become an ingrained part of the macro literature. This is due to their success at reproducing aggregate changes in consumption under a two-asset model. However, success at the aggregate level does not imply success at the micro level. Therefore, this paper presents an empirical analysis of this theory and does not find evidence of wealthy hand-to-mouth behavior at the micro level. This analysis is done following the methodology of (Johnson, Parker, & Souleles, 2006) & (Parker, Souleles, Johnson, & McClelland, 2013), which look at changes in consumption due to fiscal stimuli in 2001 & 2008. Further still, a sensitivity analysis of the definition of who falls under the “wealthy hand-to-mouth” category shows a weak, negative trend such that agents that fall under more strict definitions of “wealthy” and “hand-to-mouth” effectively have increasingly lower MPC’s in the data. Given these results, this paper empirically tests alternative theories that could both yield these aggregate changes in consumption and are more consistent with observed MPC’s. Through this analysis, I find that homeownership is more directly tied to higher consumer MPC’s during these two recessions. Directly following from these findings, then, this paper lays out a potential model that can capture the salient factors of homeownership that could yield these heterogeneous MPC’s across consumers–namely default risk in mortgages. Since mortgages are often taken out when purchasing homes, and these are often subject to default risk, this generates a pricing schedule for agents, which leads them to have heterogeneous responses and thus provides a good alternative to the current wealthy hand-to-mouth theory. The ultimate goal of this paper will be comparing this expanded model environment’s results to those presented in (Kaplan & Violante, 2014). Therefore, in this iteration of the paper I present agents’ decision rules for a similar two-asset model as that in (Kaplan & Violante, 2014), where we can see wealthy hand-to-mouth behavior.

Work In Progress

Joint work with Rohan Shah

We explore different returns on savings, in the form of risky investments, as a possible way of explaining the thickness of the right tail of the wealth distribution. Agents make a portfolio choice in an incomplete market setting with aggregate risk. This features both a distribution of households as well as a distribution of firm behavior which allows for these heterogeneous returns on investment.

Joint work with Aubhik Khan

Micro evidence suggests that homeownership may be an important aspect for models to reproduce the distribution of MPC’s in response to the recent (2001 & 2008) fiscal stimuli. To this end, we develop a model with defaultable mortgage loans in an incomplete markets environment subject to aggregate risk and reproduce the distribution of MPC’s observed in the data.

Joint work with Mohsen Mohaghegh

We explore how the response rate of monetary policy affects the distribution of wealth in the United States. More precisely, we are interested to see if the distribution of wealth changes asymmetrically in response to rapid versus slower adjustments in the interest rate.

Published by B. Vanessa Ordoñez

Economics PhD candidate at the Ohio State University specializing in monetary policy and wealth heterogeneity. President & Founder of Graduate Women in Economics